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Monday, July 11, 2011

Wonderful commentary...

It will also take a total purge of the ECB's leadership, which clingsto its madcap doctrine that monetary policy can be separated fromother emergency operations, and which chose last week of all momentsto raise interest rates again and kick Spain in the teeth. It did soknowing that the one-year Euribor rate used to price more than 90pc ofSpanish mortgages must rise in lock-step. As one Spanish commentatorput it, the Eurotower in Frankfurt should be torn down, and salt sownin the ground.

If the governor of the Banco de Espana really endorsed this rate rise(supposedly "unanimous") he should be hauled before the elected Cortesand ordered to explain such locura: if the EU authorities object, theyshould be told in crisp terms that Spain is a great and ancientsovereign nation facing a national emergency and will do as it seesfit.

Where is the inflation threat? The eurozone's M1 money supply hascontracted on a month-to-month basis over the past two months, withsharper declines in the periphery. Annualized M1 growth is falling,not rising: it was 2.9pc in March, 1.6pc in April, and 1.2pc in May.Broader M3 grew at a rate of 2.2pc over the past three months.

The PMI data for Italy and Spain have dropped below the recessionline. The Goldman Sachs global PMI indicator shows that 80pc of theworld is tipping into a slowdown, including India and China. Taiwan'sbell-weather exports to China sank 12pc in June from the month before.

The calamitous US jobs data released last Friday leave no doubt thatthe US remains trapped in depression. Broad U6 unemployment rose from15.8 to 16.2pc in June; the numbers in work fell by a quarter millionto 153.4m; the average time without a job reached a fresh record of39.8 weeks; hourly pay fell; hours worked fell; theemployment/population ratio crashed to new lows of 58.2pc.

This is not a time for the ECB to raise rates. It has repeated theerror made in mid-2008 when it tightened into the final phase of anoil shock, when half the eurozone was already in recession. Once iscareless, twice is unforgivable.